Data and Research February 4, 2019

Average Americans Really Don’t Understand 401(k)s and Financial Terminology

Questions about tax rules, 401(k) basics and financial terminology account for about 63% of the questions Dream Forward’s AI chatbox receives.

Reported by

Dream Forward, a provider of turnkey 401(k) and 403(b) plans for small and medium-sized businesses and nonprofits, says one of the most interesting revelations from exploring data from its AI chatbox for participants is the number of questions about understanding 401(k)s and financial terminology.

The company grouped the questions into five key themes:

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  • Understanding the benefit – Questions like, “How much do I need to save to get a match?” or “How do I get money from my employer?”
  • Understanding how retirement accounts work – Questions like, “How does my money get from my paycheck into this account?”
  • Understanding tax consequences – Questions like, “How does this impact my taxes?”
  • Juggling multiple financial priorities – Americans are concerned that they can’t save for retirement due to other financial pressures, such as student loans, the need to replace an aging car, credit card debt, etc.
  • Investing-related questions – Participants will ask questions as they explore the list of investment options available in their 401(k) plans.

Questions about tax rules, 401(k) basics and financial terminology account for about 63% of the questions the firm’s AI chatbox receives. Questions about 401(k) basics rank No. 1, with more than 30% of questions about that topic, followed by financial planning, which makes up more than 20% of questions received.

Dream Forward has also created a Confusion Index based on reactions to answers to questions in the AI chatbox and how much interaction it takes to get the participant to feel comfortable. Looking at the Confusion Index, the firm found the topic about which participants struggle the most is understanding withdrawal options. “Comprehending the differences between in-service withdrawals, 401(k) loans, early withdrawal tax penalties, hardship withdrawals, in-kind distributions, etc. is a challenge,” the firm says.

According to Dream Forward, overly complex retirement plans reduce participant engagement.

More information is in Dream Forward’s Retirement 2058 white paper, which may be downloaded from 
 http://dreamforward.io/download-retirement2058-whitepaper.

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